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Exchange Control of Currency: it’s Meaning and Features | Exchange Control

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Exchange Control of Currency: it’s Meaning and Features!

Exchange control is also being used as a protective device in modern times. However, the main object of exchange control is to maintain the stability of the fixed exchange rate of a currency and keep the balance of payments in regular order.

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Some leading economists have defined the term “exchange control” as follows:

G.N. Halms defines it thus: “By exchange control we refer to measures which replace part of the equilibrating functions of the foreign exchange market by regulation alien to the pricing process.”

According to Haberler, exchange control refers to “The state regulation excluding the free play of economic forces in the foreign exchange market.”

P.T. Ellsworth provides a comprehensive definition of exchange control in the following words: “Exchange control means dealing with the balance of payments difficulties, disregards market forces and substitutes for them the arbitrary decision of government officials. Imports and other international payment are no longer determined by the international price comparisons, but the considerations of national need.”

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Under the system of exchange control, the economy has the following broad features:

1. State has full control over the foreign exchange market.

2. Only those possessing licences can deal in foreign exchange.

3. There is regulation on imports.

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4. Exporters have to surrender their foreign exchange earnings to the central bank.

5. Rate of exchange is determined officially by the government. It is rigidly fixed and market demand of supply forces have no effect on it.

6. There is government monopoly and monopsony of exchange substituted for the competitive market.